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Is Melbourne set to overtake Sydney?

With booming immigration and unprecedented long term population growth predicted for Melbourne over the next twenty to thirty years, some commentators are suggesting that Victoria’s capital will outgrow Sydney to become Australia’s largest city by the year 2037.

A recent report from BIS Shrapnel predicts that Melbourne’s long term population growth will be 1.3% per annum, while the forecast for Sydney is that annual growth will drop from 1.1% to 0.9%.

These predictions coincide with a noticeable trend for the two cities that has been occurring over the last decade. According to chief executive of the Urban Taskforce Aaron Gadiel, in 2001 Sydney out-populated Melbourne by 660,000, but by mid-2009 this number had shrunk to 500,000.

Mr Gadiel noted, “The gap between Sydney and Melbourne is closing rapidly. Sydney’s lead has been reduced by 2% in the space of just eight years. Meanwhile Victoria is building new homes at twice the rate of NSW and has shown over the past decade it is capable of accommodating more additional people than Sydney.”

A report commissioned by the Urban Taskforce reveals that while Sydney appears to be losing favour as Australia’s most popular city and stagnating in terms of population growth, Melbourne is becoming the new dynamic kid on the block where everyone wants to be, and is living up to its tag line as “The most liveable city”.

The report claims that Sydney is heading for an ageing population, lower immigration, a shrinking workforce and tax base and poor affordability; all factors that could lead to a decline in economic growth for the NSW capital.

It also points out that demand for Sydney property has declined significantly since 2003 due to a rapid rise in house and residential land prices that has seen many priced out of the market and seeking greener (more affordable) pastures in other Australian cities.

Further adding fuel to the report’s fire is that during the first half of this year, 67,600 new jobs were created in Victoria, as opposed to only 33,800 new jobs for NSW.

So why is this trend occurring now?

Well the Urban Taskforce places the blame for Sydney’s apparent demise squarely on the shoulders of the state government. Its sub-title, How the planning system and development levies are ruining NSW, leaves no question as to who needs to take action and what they need to do in order to avert the report’s dire predictions for Sydney’s economic future.

The five major constraints outlined in the report that are inhibiting Sydney’s potential for growth and future economic wellbeing are;
• Australia’s highest development levies
• Lack of respect for property rights and high regulatory risk
• Under-supply of developable land
• Lack of support for state and regional significant projects
• Reinforcement of landlord oligopolies

Essentially, the report suggests that the state government’s Greenfield and residential development policies are creating barriers to growth and therefore stifling the state’s potential.

This leads us to the next question; what does all of this mean for the future of Melbourne and Sydney’s property markets?

According to Australian Property Monitors, Melbourne’s population is not the only thing about to outpace Sydney, with median dwelling prices on the verge of accelerating beyond Sydney’s as well. This would of course see the Garden state’s capital claim the crown as our most expensive city.

APM’s Matthew Bell says median dwelling prices in Melbourne consistently tracked at 60-70% of Sydney’s median dwelling price until 2004, at which point median unit and house prices for Sydney started to stagnate, while Melbourne remained one of the best performing markets in the country.

This put Melbourne’s median dwelling price for the March 2010 quarter of $522,000 at 94% of Sydney’s median dwelling price ($558,000) – the highest ratio between the two cities in recorded history.

Mr Bell says this marked change has occurred for a couple of reasons, one being the “relative strength of price growth in the last year”, but also because, “The median dwelling price is calculated using the median house and unit prices, weighting them based on the proportion of houses and units in each city. Sydney has a much larger proportion of units (26.5% compared with 16.7% for Melbourne), which means the higher median house price contributes less to the median dwelling price.”

He adds though, “With annual population growth in Victoria running at 2.2%, compared with New South Wales’ 1.7%, it is not hard to imagine Melbourne soon seriously challenging for the crown of Australia’s most expensive median priced city.”

Does all of this mean that Sydney investors should sell up and move their funds into the Melbourne property market? Probably not; Sydney is still Australia’s unofficial capital and has all the major infrastructure to sustain a large population.

Perhaps, as the Urban Taskforce suggests, Sydney will regain some favour with property punters once the state government makes some much needed reforms to its urban design and housing policies, as they surely must in order to get the property markets back on the right track and encourage new residents.

It does bode well for Melbourne investors though, as it seems now could be an opportune time to get a foot in the proverbial property door to await the city’s strong capital growth that’s apparently just around the corner. 

At Metropole, we have always found Melbourne’s inner city property market favourable for our investment clients. Recently we purchased a 1 bedroom apartment in the heart of popular St Kilda. This renovated property boasts its own car park and is centrally located close to the CBD, beach, public transport (including trams), trendy bayside shops, restaurants and cafés and entertainment.

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The apartment settled in August this year at a purchase price of $410,000 and was last sold in 2001 for $180,000, indicating a history of strong capital growth at an average rate of 9.6% per annum.  This demonstrates just how solid the inner city Melbourne property market is.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Is Melbourne set to overtake Sydney?' have 2 comments

  1. Avatar for Property Update

    July 28, 2014 @ 8:36 am Tony B

    If our “most liveable city” is allowed to out-grow the features that make it so, then our city will be the victim of its own success. There’s nothing organic about our population growth, as it’s overwhelmingly due to high immigration – mainly for the benefit of the property market and lending institutions. Melbourne is now seeing record numbers of homelessness, and youth unemployment. The housing bubble is being artificially inflated, and the disparity between the wealthy and impoverished is increasing. This “growth” is about a free market economy, and Melbourne’s liveability is disappearing.

    Reply

    • Avatar for Property Update

      July 28, 2014 @ 8:40 am Michael Yardney

      Tony
      Thanks for your comment. Yes as Melbourne matures it will look like many of the other big capitals in the world. It will be different to before, but that doesn’t make it unlivable.

      Reply


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